Consumers' inflation expectations are falling, and that could be a big deal

This week, the
Federal Reserve will decide whether or not to raise interest
rates for the first time since the target fed funds rate went
to zero in
December 2008. One of the biggest factors in whether or not
to hike interest rates is expectations for future inflation:
If people are confident that inflation will finally
break out of the low rates we've seen since the financial
crisis, the Fed might act sooner rather than later.

"One striking feature of the economic environment is that
longer-term inflation expectations in the United States
appear to have remained generally stable since the late
1990s. The source of that stability is open to debate,
but the fact that the Fed has kept inflation relatively low and
stable for three decades must be an important part of the
explanation."

This emboldened Fischer in justification for a rate hike in
the near-term.

"Given the apparent stability of inflation expectations,
there is good reason to believe that inflation will move higher
as the forces holding down inflation dissipate further," Fischer
said at the time.

American consumers, however, don't necessarily see that happening
in the shorter term.

Over the last few months, the median expected inflation rate in a
year has been falling. In July, the median consumer expected a
July 2016 inflation rate of 3.0%, while by August, the expected
rate for August 2016 was down to just below 2.8%.

The full two-year history of the survey shows an overall downward
trend in expected inflation with a few occasional upward jumps.